RIL in cash chase for shale projects

Mumbai, Feb. 9: Reliance Industries Ltd (RIL) will raise $1 billion through the issue of unsecured notes reportedly to fund its capital expenditure in the shale gas assets it shares with Chevron Corp.

The issue will be made by RILs wholly owned American subsidiary Reliance Holdings.

RIL, which has a cash chest of $14 billion (Rs 74,539 crore) for the quarter ended December, will provide financial guarantees to the note issue. The 10-year dollar bonds are understood to be priced at 365 basis points over US treasuries.

The issue is learnt to have got a good response from investors.

Global rating agency Standard & Poors today said Reliance Holdings would use the proceeds to fund capital expenditure and refinance short-term debt incurred for the shale gas business. S&P has a BBB (investment grade) rating on RIL with a positive outlook.

Last fiscal, Reliance Holdings had raised $1.5 billion through 30-year bonds in the US — the first by an Asian giant.

It could not be confirmed whether the fundraising is solely meant for expenditure in the shale acreage where RIL partners Chevron, or for all of its shale gas assets.

Reliance Marcellus LLC, a 100 per cent subsidiary of RIL, acquired a 40 per cent interest in Marcellus Shale in Pennsylvania in April 2010 under a deal with Atlas Energy. A couple of months later, Atlas was acquired by Chevron Corp.

RIL had paid $339 million upfront in the deal with Atlas and assumed a drilling carry for seven-and-a-half years, under which it agreed to pay another $1.36 billion to pay for the wells that were supposed to be dug. The acreage supports the drilling of over 3,000 wells.

After Chevron acquired Atlas Energy, RIL was stuck with the obligation to fund three-quarter of the cost of gas exploration. It was not immediately clear whether the second fund-raising exercise was being made under pressure from Chevron.

S&P said the RIL rating reflected the companys large-scale, integrated and efficient oil refining and petrochemical operations and good business diversity. Besides, the firm has stable cash flows and low leverage with strong liquidity.

However, it said weaknesses such as its vulnerability to the cyclical nature of its industries and commodity prices, exposure to Indias regulatory risks with regard to gas-producing blocks in the Krishna-Godavari basin, declining output from KG-D6 had offset its strengths.

S&P added that RIL could see a rating upgrade if there was clarity on its business strategy.